Friday, October 03, 2008

Welcome to the next ten years

Interesting op-ed from Associated Press on the Free Press' website, "Depression offers lessons for financial crisis." The lesson to learn, it seems, is that it would be wrong to "do nothing" and leave the market to its own devices. No problem there, since post-Enron, the U.S. financial system has been regulated as never before.

It also follows the mythical narrative that President Hoover "didn't take strong enough action or do so quickly enough" in the years after the Crash of '29. But as Alan Reynolds, wrote in the Financial Post on Wednesday, the Depression essentially gained its "Greatness" not by what Hoover didn't do, but what he did (and what Roosevelt did after him):

"Herbert Hoover initiated a violent implosion of world trade and prices by signing the infamous Smoot-Hawley tariff on June 17, 1930. The Commercial and Financial Chronicle then observed “a renewed violent collapse of the stock market.” Benjamin Anderson, the chief economist for Citibank at the time, called the draconian tariffs Hoover’s “crowning financial folly” and explained why:

'In a world staggering under a load of international debt, which could be carried only if countries under pressure could produce goods and export them to their creditors, we, the great creditor nation of the world, with tariffs already too high, raised our tariffs again ... Protectionism ran wild over the world. Markets were cut off. Trade lines were narrowed. Unemployment in the export industries all over the world grew with great rapidity, and the prices of export commodities ... dropped with ominous rapidity.'"

This piece of history may be inconsequential, were it not in danger of being repeated. Reynolds goes on:"Obama’s Hooveresque vision of raising corporate taxes by 25% (in the guise of closing loopholes and tax havens), and of trying to raise income, payroll and investment tax rates for those who already bear most of the federal tax burden, is just dangerous."

Perhaps more dangerous than that, would be if Obama acted on his protectionist rants against NAFTA during the Democratic nomination campaign. Let Canadians hope for the sake of our own relative economic stability that this was just hollow anti-Clinton talk to pander to organized labour.